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2011 Silver Trends

So far, 2011 has been an eventful year for silver, with massive investor demand, a climb to near-historical highs followed by a sudden drop, and a new trading range that is leaving many analysts cautiously optimistic about the future of the metal, as well as the companies mining it.

Silver made a gradual climb in tandem with gold through 2010, nearly doubling to around $30 an ounce by the beginning of 2011. As gold continued its steady assent, this partnership was abruptly broken when the silver fell from a peak of $49.85 on April 28 to a low of $32 less than three weeks later. This shock was largely attributed to the COMEX margin rate increases, though silver is historically considered a much more volatile asset than gold. This also further fuelled proponents of the contentious silver price conspiracy, who believe silver prices are being undervalued due to manipulation.

In spite of this dip in price, some analysts say the silver market is actually better off than before, because it represents a higher, more comfortable, new trading range, from which it has the potential to make significant gains in the near future.

“The best way to look at it at the moment is that a new trading range has been established for silver in the 30-50 area. If trends and silver acts like they have historically, then we could see a wide trading range for an extended period where 30 on the low end and 50 on the upper end could become a range for a while. The past has shown it takes a while to work off these types of plunges,” said Bill Downey, an independent silver and gold price analyst, and author of Goldtrends.net. “The analysts who have called for these prices have been correct so far over the past few years and we should continue to respect their forecasts, with patience as a virtue.”

As with gold, demand for silver has been growing for its use as a hedge against inflation in an environment of global economic uncertainty and silver is filling a role as a more affordable alternative to the yellow metal which for some has become prohibitively expensive.

The first crucial issue that has been driving investors to safe-have investments is the Eurozone debt crisis, beginning first with Greece in late 2009, then hitting Ireland, Spain and Portugal. This finally culminated in changes to the European Financial Stability Facility, which further spurred fears of the Euro currency’s inflation. Later, when the S&P downgraded the US credit rating for the first time in nearly a century, stocks and commodities immediately suffered – except silver and gold which made significant gains.

Though silver has been adopted by many investors for its store value, the majority of silver usage, unlike gold, is for its use as an industrial metal. There are certainly many emerging technologies that incorporate silver, but analysts say that its store value has been by far been the greatest driving force.

Much of this demand for precious metals is growing in emerging markets like China and India, with silver being no exception. Chinese silver demand rose sharply in 2011 and the country is currently the leading purchaser of the metal. As discussed mentioned in a previous article, analysts see growing demand for silver in China, as well as India, rising by as much as 30 percent on the year.

“China imported 245.6 metric tonnes of silver in February. The figure was so close to the 260.6 metric tonnes that the country imported last February and it showed that China was willing to shell out money for the white metal at over $30 per ounce,” stated Manikbhai Shah, a silver retailer in Mumbai.

In terms of silver mining equities, many have stayed quite flat even while the metal price has gone up and down. One reason these mining stocks have lagged their underlying commodity is that investors are piling into physical silver and ETFs as a safer way to invest in the metals. Moving into the future, investors could expect a rise in many silver mining share prices if demand overtakes supply, allowing more and more operations to become financially viable.

About the author

Kal Kotecha, MBA, is the editor and founder of the Junior Gold Report, a publication about small cap mining stocks that is read and enjoyed by thousands of investors. From 2003-2006, he was the editor and creator of the Moly/Gold Report, which focused on critical analyses and open journalism of companies profiting from the precious and base metals sector. He then subsequently changed his newsletter to Junior Gold Report. His reports and articles have been featured on sites such as Kitco.com. 321gold.com and Seeking Alpha. The scope of his current activities include worldwide onsite analyses and reporting of developing companies. Kal has previously held leadership positions with many junior mining companies. After completing his MBA in Finance in 2007, Kal is currently working on his PhD in Business Marketing. He also lectures Economics at the University of Waterloo and Niagara College where he was voted Professor of the Year 2013/2014.